Razr turned back on after glitch

Some analysts raise quality control issue

A temporary halt in sales of Motorola's hot-selling Razr phone has caused some Wall Street analysts to raise concerns about broader quality control problems at Motorola.

But Motorola said there is nothing to worry about, as the Razr began a limited reappearance in stores Monday

Even the stock analysts doubt that the sales suspension--caused by a defect in a batch of Razrs--will actually hurt Motorola's financial performance.

Last Wednesday and Thursday T-Mobile and Cingular Wireless pulled the Razr from store shelves after Schaumburg-based Motorola informed each of a glitch that caused calls to disconnect on some phones.

Motorola says the problem affected a "very limited" number of phones shipped after Feb. 1. Both carriers stopped selling the phone to ensure that their customers did not get stuck with a defective Razr.

A new shipment of Razrs had reached Cingular's distribution centers by Friday, and phones from that batch had been shipped to some stores by Monday, said Jennifer Bowcock, a spokeswoman for Cingular, one of the two largest U.S. wireless carriers.

She said the Razr was being sold again Monday in the Washington and Baltimore area, but could not confirm any locations beyond that.

"Not every single store will have new Razrs in place today or tomorrow," she said. The Razr's reappearance will be a "rollout" through the week.

T-Mobile spokesman Peter Dobrow said T-Mobile, the nation's fourth-largest carrier, has not started selling the Razr again, but expects to this week. The problem does not affect Razrs sold through Verizon Wireless, which uses a different technical standard than T-Mobile and Cingular.

Motorola spokesman Alan Buddendeck said stores should be fully stocked with the Razr soon. "Within a matter of days it will be widely and readily available."

Motorola's stock recovered late Monday after dropping Friday and early Monday on news of the sales suspension. Motorola closed Monday at $20.90, up 6 cents, after trading as low as $20.22 in the morning. Last Friday, the stock fell 40 cents.

The Razr is a "flip phone"; normally when it is flipped shut a call gets disconnected. The glitch involved a component that was misreading the Razr as closed when it was actually open, thus cutting off calls.

The component came from a single supplier, according to some stock analysts.

The problem led analyst Susan Kalla of Caris & Co. to downgrade Motorola's stock Friday from "above average" to "average."

Kalla wrote in a research note that while the glitch affected a minimal number of phones, she was concerned that the defect could point to "production" and "quality control" issues.

Another analyst, Tal Liani of Merrill Lynch, wrote in a research note that the problem is "immaterial" to Motorola's financial performance, but that he wondered "if this perhaps signals deeper issues with Motorola's [quality control]."

Buddendeck disagreed, saying that Motorola's concern for quality caused it to immediately inform Cingular and T-Mobile when it discovered the glitch.

Such problems do not happen often when a phone has been selling as well as the Razr has for so long. The ultraslim phone was introduced in November 2004, and has since helped redefine cell phone form.

The revelation of the glitch came less than two months after Motorola told analysts that the fourth-quarter launch of three high-profile phones was hampered by supply chain constraints.

The phones were the Slvr, the Pebl and an advanced version of the Razr. In all three cases Motorola was not able to get all the components it needed from its suppliers, limiting sales.

Motorola Chief Executive Edward Zander has made improving Motorola's supply chain management a major priority over the past year or so.

When Zander became CEO in early 2004, Motorola was coping with a production snafu on a batch of new camera phones. The phones came out late, missing the crucial 2003 holiday season.

Since then Motorola seems to have improved its supply chain management, analysts say. But the recent issues caused one analyst to question whether some of the remedies themselves are creating new problems.

"I think it raises some concern that there is more risk in [Motorola's supply chain reform] than people had taken account of," said Ben Bollin, an analyst at FTN Midwest Securities.

Still, Bollin has not changed his investment thesis on Motorola.

In fact, Bollin said that with a slump in its stock in recent weeks Motorola is now trading at a discount to its competitors. "It's getting very cheap."